Economic Effects of NAFTA on Mexico - Assignment Example

Question How has NAFTA affected the market share of the broom-corn broom industry Prior to NAFTA, the broom-corn broom industry or the broom employment of about 1,500 nationwide generate sales estimated at $100m million in 1993. There was an intermittent rise and fall of apparent consumption of broom corn brooms per dozen as follows: Source 1991 1992 1993 1994 1995 US 796,302 801,906 793,978 768,592 614,477 Mexico 157,605 104,067 123,528 195,770 388,286 Panama 43,714 38,952 51,611 107,921 62,306 Honduras 30,174 71,289 70,927 66,817 45,914 Colombia 0 4,465 10,439 13,544 24,981 Hungary 28,920 26,880 43,980 34,208 9,000. All other 39278 7,771 36,667 26,236 16,222 Market share for the US for broom-corn brooms is 70.9% for 1991, 73.3% for 1992, 72.4% for 1993, 72.3% for 1994 and 64.8% for 1995. Although the rise and fall for US-made broom-corn broom was intermittent, the season for 1995 saw the lowest fall at only 64.8 percent indicating that imported broom-corn brooms are slowly gaining market share. Specifically, the following indicates an overview of market share: In the case of the broom-corn broom, it was pointed out that by 1996, there were only about 600 nationwide employees for the broom industry in the United States. Of the total imports in 1991, Mexico supplied 52% or roughly 11% of the total consumption. Panama supplied 14% of the total import or estimated 3% of the total US consumption, Honduras represented 10% of the total import or roughly 2% of total consumed. Hungary held 13% of the total import and represents about 3% of the total 1991 US consumption. By 1992, Mexico represented an estimated 7% US market share or 41% of the total import, Panama represents 15% of the imported broom-corn brooms. Question 2: Are the effects outlined in the tables and in the case study those you would expect as a result of a free trade area being established In consideration of the presented data, there is a levelling and balancing of market share as an effect of the NAFTA. It is expected that lifting of tariffs allows exchange of goods and services that will give a chance for lower cost products to compete with higher costing product . Below summarises that effect of NAFTA on the broom-corn broom: Source 1991 1992 1993 1994 1995 U S shipment 1,132,125 1,087,100 1,097,977 1,071,269 951,989 Total Import 299,692 253,423 337,151 444,496 546,709 Total Consumption 1,431,817 1,340,523 1,435,128 1,515,765 1,498,698 Imports come from Mexico, Honduras, Panama, Colombia and Hungary. The total import in 1991 was about 20.1% of the apparent consumption, with US supplying about 79%. Import fell by roughly 19% by 1992 with US sourced at 81%. Import rose at 23% by 1993, decreasing US counterpart to 76%. By 1994, total consumption grew but import also grew at 29% while US suppliers were able to ship only about 70%. Likewise, the trend of continued import growth in 1995 had imports garner a total of 36% of the market share as compared to the US shipment of only about 63%. The effects of the The Congressional Budget Office (CBO) reported that NAFTA had a comparatively small but positive effect on US exports to Mexico which ranges from 2.2 percent in 1994 to 11.3 percent in 2001 with a parallel result for US imports from Mexico that grew from 1.9 % in 1994 to 7.7% in 2001. In fact, considering these figures, the US gained more as the balance of trade in goods had been considerably small, of which decline were noted since 1993 attributed to the peso crash in late 1994, the associated Mexican recession in late 2000, and the prolonged US economic boom from 1990s through 2000 (CBO, 2002). Below are the indicative charts presented by CBO: U.S. Goods Trade with Mexico with and Without NAFTA (In billions of dollars) Source: Congressional Budget Office using data from the Bureau of the Census for actual values and projections from CBO's model for other values. Likewise, the trade balance is illustrated in the following table below: Effects of NAFTA on U.S. Goods Trade with Mexico Effects in Billions of Dollars Effects in Percent Effects as a Percentage of U.S. GDP Exports Imports Trade Balance Exports Imports Exports Imports Trade Balance 1994 1.1 0.9 0.1 2.2 1.9 0.016 0.014 0.002 1995 2.0 2.9 -0.8 4.7 4.9 0.029 0.040 -0.012 1996 3.8 4.2 -0.4 7.2 6.1 0.052 0.057 -0.006 1997 5.6 5.4 0.2 8.6 6.8 0.074 0.071 0.003 1998 6.9 6.4 0.5 9.5 7.2 0.086 0.080 0.006 1999 8.4 7.5 0.9 10.8 7.4 0.101 0.090 0.011 2000 10.4 9.1 1.3 10.3 7.2 0.120 0.105 0.015 2001 10.3 9.4 0.9 11.3 7.7 0.118 0.107 0.010 Source: Congressional Budget Office It is then clearly illustrated that there is a smoother flow of exchange in goods and services, as well as balance in economic exchange. For US alone, the following is indicated with regards to the effects of NAFTA: Effects of NAFTA on U.S. Gross Domestic Product Effects in Billions of Dollars Effects in Percent 1994 0.1 - 0.4 0.001 - 0.005 1995 0.1 - 0.7 0.001 - 0.010 1996 0.2 - 1.3 0.002 - 0.018 1997 0.3 - 2.0 0.004 - 0.026 1998 0.3 - 2.4 0.004 - 0.030 1999 0.4 - 3.0 0.005 - 0.035 2000 0.5 - 3.6 0.006 - 0.042 2001 0.5 - 3.6 0.006 - 0.041 Source: Congressional Budget Office. This means that the effect of the NAFTA on US economy has been a positive gain of a few billion dollars, and the same is applicable with the compared country Mexico. But in general, it is not enough to measure effects of trade blocs simply by indicating GDP growth or increase of employment as the end-all effect of trade blocs. It is a common characteristic of trade blocs that member nations grant each other preferences with regard to goods and factor movements leaving barriers to trade and factor flows. The Vinerian tradition (Viner, 1950) focus on trade creation effect so that there is more trade with the more efficient partner and trade diversion effect where trade is diverted away from the low-cost producer outside the union. Ohly (1993) proposed that the welfare-decreasing trade diversion effect overcompensate the welfare-increasing trade creation effect. But effects also include the dynamic effects such as capital accumulation, savings and technological changes (El-Agraa, 1994). Questions 3 The Commissioners disagreed about whether or not the broom-corn industry should have been protected. Do you think it should have been protected In order to properly asses the position of the broom-corn broom industry, it is necessary to outline that the three statutory criteria must be present to reach a positive decision and agree to protection. These include: the goods in question are imported into the USA in increasing quantities; the domestic industry is seriously injured or threatened with injury; the increased imports are a substantial cause of the serous injury or threat of injury. In an overview, most regions of the world for decades now have adopted trade blocs, such as NAFTA, the European Union, South-East Asian Nations, Caribbean Community, and the Economic Community of West African States. These are characterised by regional integration blocs where member nations grant each other preferences for exchange of goods and services leaving barriers to trade and factor flows with the rest of the world unchanged or even increasing them. But it has been acknowledged by the umbrella trade bloc: World Trade Organisation that "The goal is to help producers of goods and services, exporters and importers conduct their business," (WTO, 2007). As critics observed, the free trade resulted in the rich countries and people becoming richer and the poor getting poorer. Third World Network Director Martin Khor argued the WTO does not manage the global economy impartially although there was an apparent systematic bias toward rich countries and multinational corporations as poor countries still market access in industry has not improved; these countries have had no gains yet from the phasing out of textiles quotas; non-tariff barriers such as anti-dumping measures have increased; domestic support and export subsidies for agricultural products in the rich countries remain high (Khor, 2000). Biases indicated include: "Rich countries are able to maintain high import duties and quotas in certain products, blocking imports from developing countries (e.g. clothing); The increase in non-tariff barriers such as anti-dumping measures allowed against developing countries; The maintenance of high protection of agriculture in developed countries while developing ones are pressed to open their markets; Many developing countries do not have the capacity to follow the negotiations and participate actively in the Uruguay Round; and The TRIPs agreement which limits developing countries from utilizing some technology that originates from abroad in their local systems (including medicines and agricultural products)." Reference: Cline, W.R., Trade Policy and Global Poverty, 264 Congressional Budget Office (2003). "The Effects of NAFTA." The Effects of NAFTA on U.S.-Mexican Trade and GDP, May, Section 5 of 9. El-Agraa, A (1994). The Economics of the European Community, 4th ed. New York: Harvester Wheathersheaf. Khor, Martin (2000) "Rethinking Liberalisation and Reforming the WTO." Presentation, World Economic Forum at Davos, Switzerland, 28 January. Ohly, C (1993). "What Have We Learned About the Economic Effect of EC Integration." Economic Papers 103, Sept., 1993. Salvatore, Frederick (2007). "Economic Effects of NAFTA on Mexico." Global Economy Journal 7 (1). Viner, J. (1950). The Customs Union Issue. New York. Wikipedia. (2007) "Criticisms to WTO." Accessed from Wikipedia.org World Trade Organization (2007). Read More